Indians to be richer amidst slower GDP growth

New Delhi: The Union government has released its Gross Domestic Product (GDP) growth projection for the financial year 2017, which says that India’s per capita income is expected to cross Rs 1 lakh this year. Per capita income is the money an average citizen of the country earns in a year; taking into account the richest and the poorest people and everybody else in between, it is a measure of the living standard of the people of a given country. India’s per capita income in FY16 was Rs 93,231, in FY15 it was Rs 86,879, and in FY14 it was Rs 79,412.

This projected income comes after taking into consideration the 1.2% increase in the population against the nominal GDP growth rate of 11%, which gives a net value of more than 8%. After including this growth, the projected per capita income exceeds the Rs 1 lakh milestone.

Per capita income is calculated by dividing the country’s total income by its population. After that, it needs to be tweaked against inflation to check whether incomes are rising. However, this figure will not be the same for urban and rural areas. The individual assessments for incomes and expenditures of different domains will give a real idea of the rural-urban divide in India.

Graph by Reserve Bank of Australia

Now, it is a fact that the per capita income in FY2010 was Rs 46,492. So, the crossing of the 6-figure milestone means that, in about 7 years, the per capita income has nearly doubled. But the important thing to be noted is that this growth is largely riding the shoulders of the urban population. Because the agricultural sector in India is poorly performing and has seen a lot of ups and downs. So, a huge difference in rural and urban capita income is quite likely. Also, the poorer regions have a higher inflation rate, particularly those where agricultural activities are predominant.

On the flip side, the GDP, the government believes, will grow by 7.1%, which is a dip from the previous expectation of a 7.6% growth. “The growth in GDP during 2016-17 is estimated at 7.1% as compared to the growth rate of 7.6% in 2015- 16,” the Central Statistics Office (CSO) said.

But this data released by the CSO should not be attributed to Prime Minister Narendra Modi’s decision to invalidate old Rs 500 and Rs 1,000 currency notes, as the data collection and assessment exercise was carried out before 8 November 2016. The exercise is justified, though. “Being a statistical organisation, the CSO has to go on real statistics and we cannot expect them to go on the basis of impressions and anecdotal evidence,” Economic Affairs Secretary Shaktikanta Das said.

Therefore, if the apprehension of several eminent economists holds, the impact of demonetisation can bring the figure further down.

Rating agencies say even 7.1% is optimistic. According to ICRA and Care Ratings, the GDP growth will be 6.8% in 2016-17; according to Crisil, it will be 6.9%. The State Bank of India’s internal assessment pegs it at 6.7%.

Crisil notes, of course, that the economy will look up once again after two quarters by when the impact of demonetisation will have subsided. It may reach 8% if 2017 sees a normal monsoon.

Real GDP at constant (2011-12) prices in 2016-17 is expected to be Rs 121.55 lakh crore. The provisional estimate of GDP for 2015-16 of Rs 113.50 lakh crore was released on 31 May 2016.